UK Manufacturing PMI® - Manufacturing sector remains subdued at end of second quarter

02-Jul-2018

The
performance of the UK manufacturing sector remained relatively subdued in June,
especially when compared to the marked pace of growth seen before the turn of
the year. Output growth moderated, to largely offset a mild acceleration in new
order growth and improved job creation. The survey was conducted between 12-26
June.

At
54.4 in June, the seasonally adjusted IHS Markit/CIPS Purchasing Managers’
Index® (PMI®) was a tick above May’s downwardly revised reading of 54.3
(originally 54.4) and stands almost four points below the 51-month high reached
in November last year. The average reading overquarter two as a whole (54.2) is the weakest outcome since the final
quarter of 2016.

Sector
data indicated that the upturn remained broad-based during June. Output and new
orders rose across the consumer, intermediate and investment goods industries.
However, the overall rate of expansion in manufacturing output slowed, as
growth of new order inflows improved only mildly. Some companies noted that
higher output had been partly sustained through inventorybuilding and clearing
backlogs of work.

Although
the rate of increase in new business edged up to a three-month high, it
remained among the weakest registered over the past yearand-a-half. Rates of
growth in new work received were broadly steady in both domestic and overseas
markets. Where an increase in new export business was reported, this was partly
linked to increased sales to mainland Europe, China, South America and
Australia.

June
saw a solid improvement in the rate of job creation, with staffing levels
rising at the quickest pace for three months. Employment increased across the
consumer, intermediate and investment goods sectors. However, the overall rate
of jobs growth remained below those seen through much of 2017.

Input
cost inflation accelerated to a four-month high in June, with companies
reporting a wide range of inputs as up in price. Some noted that cost increases
were being exacerbated by shortages of certain raw materials. Part of the rise
in costs was passed on as higher selling prices. Business optimism remained
positive in June. Over 51% of the survey panel forecast output to rise over the
coming year, linked to market growth, investment spending, organic expansion,
planned promotional activity and higher capacity. However, the degree of
positivity dipped to a seven-month low, as some firms expressed concerns about
input price increases, possible future trade tariffs, the exchange rate and
Brexit uncertainty.

Rob
Dobson, director at IHS Markit, which compiles the survey, said:

“The
UK manufacturing sector ended the second quarter on a subdued footing. The
turnaround in performance since the start the year has been remarkable, with
impressive growth rates late last year turning into some of the weakest rates
of expansion seen over the past two years in recent months.

“The
slowdown in new order growth since earlier in the year has also left
manufacturers increasingly reliant on backlogs of work and inventory building
to maintain higher output. This is a position that cannot be sustained far
beyond the immediate horizon. The trend in demand will need to stage a much
firmer rebound if a further slowdown in output growth is to be avoided.

“How
likely such a revival is remains in some doubt, with the June survey also
seeing business optimism drop to a seven-month low amid rising concerns about
possible trade tariffs, the exchange rate and Brexit uncertainty. Ongoing
supply-chain disruptions, including raw material shortages, and signs of a
renewed upswing in input price inflation may also jeopardise stronger
manufacturing growth. With industry potentially stuck in the doldrums, the UK
economy will need to look to other sectors if GDP growth is to match
expectations in the latter half of the year.”

Duncan
Brock, group director at the Chartered Institute of Procurement & Supply,
said:

“A
gentle hush descended over the sector in June as growth of new orders was
amongst the lowest in 18 months and the almost imperceptible rise in
manufacturing output was more about housekeeping and clearing up backlogs than
tackling new business.

“The
undercurrent of uncertainty was once again the main culprit as clients
hesitated to place orders resulting in the overall index average over the
second quarter becoming the weakest since the end of 2016 and optimism falling
to a seven-month low in June.

“Material
shortages and the highest rise in input price inflation since February also
disrupted supply chains so managers tried to beat future price rises by buying
up materials already in short supply and in case suppliers continued to fail in
their obligations as delivery times worsened again this month.

“This
diminishing strength in the sector will be a setback, but with an increase in
hiring and continued optimism resulting in new products and markets, the sector
may yet beat the Brexit blues.”